This is correct. Stock buybacks are just a way of doing dividends that is more tax advantaged.
The right answer isn't to introduce new forms of buyback taxes with unknown second-order effects (who would you tax? if the shareholder is avoiding dividend taxation, taxing the corporation isn't a great solution). The solution is to just improve the way we tax dividends and capital gains.
I agree with this entirely. If you tried to tax buybacks, you'd likely be inadvertently taxing a ton of the corporate infrastructure used for administrative purposes. In this case, the buyback is clearly like a tax-advantaged dividend, but with a key difference: it's not liquid. Dividends cross that critical threshold of spendable cash that triggers taxation.
If only 20 widgetshares exists in the world and we each have 50% (you have 10 and I have 10) and the market for widgetshares is $200.
Should you be taxed for your theoretical $5.26 gain if I destroy 1 widgetshare but you haven't sold any. Buy backs are no different. You will pay taxes if you sell.
Personally, I think you should pay taxes if you take out a loan using the market value of the shares as collateral. This is where everything starts getting funny and companies and individuals start being able to avoid taxes forever.
At the time of death, either make the estate pay capital gains taxes on the market value of the assets, or just don't give the heirs a stepped-up basis. It will catch up eventually.
The right answer isn't to introduce new forms of buyback taxes with unknown second-order effects (who would you tax? if the shareholder is avoiding dividend taxation, taxing the corporation isn't a great solution). The solution is to just improve the way we tax dividends and capital gains.